Report: Medicare Cheats Poor States

December 8, 1990|The Washington Post

WASHINGTON -- The Medicaid program uses a federal matching formula that cheats the poorest states of billions annually in federal health-care dollars, the General Accounting Office told Congress on Friday.

The program, a joint federal-state effort to provide medical care to low- income people, still leaves millions of poor and near-poor Americans without health care and imposes ``fiscal pain`` on state governments, said other witnesses at a hearing before a House Government Operations subcommittee, chaired by Rep. Ted Weiss, D-N.Y.

Janet L. Shikles of the GAO said the poor could receive more and better health care from Medicaid if the formula the government uses to reimburse states in the $80 billion program were changed to ensure that needier states got a larger share of the federal money.

The formula the federal government uses to reimburse states for a portion of their outlays ``does not target most federal funds to states with the greatest needs; that is, those with weak tax bases and high concentrations of poor people,`` she said.

When the program was created, per capita income was chosen as the best measure both of whether a state had a large number of poor people who needed Medicaid and whether the state government had the capacity to pay for it. She said the per capita measure is an inadequate measure of either.

The per-capita formula directs the government to reimburse at a higher rate a state whose per capita income is relatively low compared with the national average. Conversely, a state whose income is relatively high is reimbursed at a lower rate. The national average reimbursement is 57 percent, but it ranges from 50 percent to 80 percent for individual states.

The federal government reimburses the state with the lowest per capita income -- Mississippi, where the GAO said it averaged $10,000 a year between 1986 and 1988 -- for about 80 percent of its Medicaid outlays. Maryland -- where per capita income averaged $16,862 over the three-year period -- is reimbursed for 50 percent of its outlays, and Virginia, with per capita income of $15,367, receives 51 percent.

``Perhaps the most significant weakness of per capita income as an indicator of a state`s ability to finance program benefits is that it does not reflect all the income states are able to tax,`` such as corporation business profits retained for investment and dividends earned in one state by a company but paid to stockholders who live elsewhere, Shickles said.

She said the Treasury estimates total taxable resources produced within a state that are a truer measure of a state`s ability to pay. For example, she said, in Wyoming taxable resources are 28 percent higher per person than its per capita income; in Alaska 36 percent; in Texas, 7 percent; and in Louisiana, 12.7 percent.

Shickles said the formula also is flawed because per capita income is not always a good measure of the incidence of poverty in a state.

She proposed a formula based on total taxable resources and the actual number of people in poverty. She also suggested reducing the minimum federal reimbursement to 40 percent. In 1989, that formula would have shifted $3.2 billion to the more needy states.

Under her proposed formula, Connecticut, Iowa, Massachusetts and New Jersey would have received 35 percent less, and Alaksa would have received 40 percent less. Arkansas and Georgia would have received 35 percent more, while`s Florida`s reimbursement would have jumped 51 percent.

The proposed formula would have resulted in a cut of $127 million (24 percent) for Maryland, while Virginia would have gained $30 million (6.6 percent). The GAO did not include the District of Columbia in its calculations.

Medicare-Medicaid administrator Gail R. Wilensky said any Medicaid formula change would spur a terrific fight between ``winner`` and ``loser`` states, so it would be best not to change the formula until broad changes in the whole health-care system being studied are decided on.